Because the gutters usually a better solution at much lower cost.

As a SFR investor for over 15 years I have been wrestling with this question in the past, because it feels like you should upgrade to "bigger".I know for sure that I would not enjoy the ownership experience that comes with a small 4F, because in Milwaukee that typically also means lower income tenants. 

With that being said we tend to see a lot of CA buyers relocate here for the lower cost of living including lower home values, property taxes, insurance, no state income tax, gas prices etc.

For example, California has an $800 minimum franchise tax, while other states have lower fees or no franchise tax at all.

Looking for any creative input on how something like this could be structured.Taking part of the purchase price of real estate as a charitable donation and using said deduction to lower your taxes is tantamount to sending a cover letter to the IRS with your return requesting an audit.  

Strategies like living in a duplex or triplex, adding an ADU, or renting by the room can help maximize cash flow while leveraging FHA or VA loans for lower upfront costs.

The equity is actually what you are paying for the property.In this case let's look at the numbers that count,...the current numbers.You have about $500k or more in equity, which is buying you a property that's worth about $700k (I went with the lower PV. 

You will have to pay higher personal income tax rate, versus waitingtill after one year for lower Capital gain tax rates.

I really wanted to try finding a duplex that i could immediately rent out the lower half rather then buy a SFH and have a higher mortgage overallHow did you find this deal and how did you negotiate it?

I have several CFO clients that do similar heavy rehab projects in the Midwest (albeit with a lower purchase price), so you can definitely make the numbers work.